Leola is a house flipper in Diamond Bar, CA. She locates a run-down property for sale and decides to remodel it and resell it for a profit. The property has a cost of $230,000 but she does not have the full amount so she takes out a private money loan with Riverside Lending Corporation. The lender agrees to issue a loan with a 65% loan-to-value (LTV) so they are willing to loan $149,500 on the house. The parameters of the deal dictate a 12% note for 12 months. They also stipulate a 3 point origination fee, which will also need to be paid at closing.
In addition to paying the $4,485 origination fee, Leola will also fund $80,500 of the purchase with her own money, or 35% of the purchase price. she must then pay $1,495 per month to Riverside Lending Corporation. If Leola sells the property for $276,000 after 12 months, she would then earn a gross profit of $23,575 after subtracting the original principle of $149,500, the funds contributed at closing of $80,500, the origination points of $4,485, and the aggregate interest payments of $17,940. This profit does not account for renovation costs.